21 Oct 2022
Jacqui Baker, partner and head of retail at leading audit, tax and consulting firm RSM UK, comments on the September ONS retail sales data, which shows a decrease in retail sales volumes of 1.4%.
‘Consumers reigned in their spending last month in anticipation of a spike in their bills due to the energy price cap increase in October. In addition, the extra bank holiday due to the Queen’s State Funeral is likely to have impacted trading in September. Consumer confidence also reached another all-time low with all categories falling except clothing which was up 0.1%. However, food sales fell 1.8% which leaves them 3.2% below pre-Covid levels.
‘With less than 10 weeks until Christmas, the remainder of this Golden Quarter will be a crucial trading period for retailers who normally enjoy the tills ringing at this time of year. It could be make or break in some cases. Many retailers will be relying on consumer demand to offload the excess stock sitting in their warehouses, particularly during Black Friday and Cyber Monday.
‘As consumers trade down, it’s key that retailers hold their nerve and avoid discounting too early, but some may be left with no choice.
‘The government’s U-turn on its VAT-free shopping scheme will be a massive blow to a sector looking for support. With business rates frozen for the last two autumn budgets, the hope is that the government will step in and continue the freeze, rather than leaving retailers to fend for themselves to survive the difficult winter ahead and a stark start to 2023.’
Thomas Pugh, economist at RSM UK, added: ‘‘Another massive fall in retail sales volumes is a very clear signal that consumers are sharply cutting back on spending and cements the drop in GDP in Q3. We are expecting a drop of 0.5% q/q. Admittedly, the September sales were depressed by the extra Bank Holiday for the Queen’s funeral. But we don’t expect Q4 to be much better as another rise in energy bills in October and soaring mortgage rates will continue to depress consumer spending and hammer retail spending and the wider economy.
‘Overall, we think the economy is already in a recession and will be until Q3 2023 with a peak-to-trough drop in GDP of around 2%, similar to the 1990s recession.’